German Perspective—10.11.09
10/11/2009
What happened this week: This week wasn’t much more enlightening than recent weeks. Trading is just about steady but not really convincing either. There is still some spot interest from China for some grades, but one can’t sense any real buying mood at all; it seems that regular buyers are just buying hand to mouth in preparation already for the Chinese New Year break in mid-February. It seems that there are no big inventory positions of any better grade materials and so buyers have decided to take what they need to cover their month-by-month requirements.
The stability of the US market is helping. A the stronger US dollar until mid-week last week made quick decisions possible and trades at the beginning of the week were definitely better. The financial markets are more than happy that the Federal Reserve continues to flood the markets with cheap money, which is weakening the dollar on the one hand and fuelling asset speculation on the other. For the hide market, this perspective is more dangerous than positive.
Cheap and cheerful
With the exception of those in China, tanneries are seeing no benefit in the cheap and excessive money being pumped into economies around the world. The money is simply not reaching enterprises as banks are pretty reluctant to lend money, in particular to an industry that is still in a difficult state in the western world. So it’s hard to believe that hide prices could benefit from the cheap money policy around the globe.
Quite the reverse. One could be of the opinion that rising or higher raw material prices would squeeze tanners’ margins even further because there is no indication that higher leather prices can be achieved from clients and passed into the retail markets. We already had a bit of a taste of how the markets react to sharply gaining raw material prices at the end of the summer when many suppliers tried to push prices up in view of the positive expectations for the global economy. Being realistic there is a lot of talk about the recovery, but other than in Asia (and especially China) one can’t really see any recovery in retail of leather products that would justify a further and extended jump in raw material prices.
Ill wind ahead for European hides
Assuming that Federal Reserve policy is going to weaken the US dollar even further, it will mean even more headwinds for European hides. For the short term all this might have little influence on the market, but in 2010 it could become more of an issue. Let’s face it, the whole market is driven by domestic Chinese demand and optimism. The rest of the present global leather demand would not justify the levels we have already returned to; we are all dependent on what is happening in China.
We have not been able to trace any real news from the leather market. Most tanners seem to have their order books filled as far as they can and are focusing now on keeping production running accordingly. Good quality material is still generating enough interest and is most likely even comfortably sold forward. For normal material and in particular for cows the situation seems to be pretty mixed. While some suppliers seem to have a comfortable sold ahead position until the end of the year at least, others seem to be in the opposite situation and are still inventory-burdened. This may also be related to quality issues as we understand that there are quite a few unresolved quality issues pending in China. This does not come as a surprise because in October a lot of hides arrived that were shipped in September and we are quite aware of a lot of cocktail mixing when the market went up in the summer and German abattoir prices lost any connection with the normal market realities.
Safe pipeline
Now a number of tanners realise, that cheap isn’t necessarily true after goods have arrived and quite a number of Chinese buyers are presently trying to figure out what actually has happened. Anyway, it will not last long as people in that part of the world learn fast. That brings us to another interesting situation. The number of local Chinese companies trying to buy hides for export to friends, neighbours, brothers and sisters in law is increasing almost daily. This is a clear indication that they try to build up their own safe pipelines.
Trade was patchy early in the week for some regular dairy cow programmes and also a few low grades were moved. With the help of the short lived strength of the US dollar, prices were kept steady and sales number were pretty steady.
The kill: The kill is beginning to increase at last and numbers are getting better. Weather is pretty poor for the time being and temperatures are low, which seems to force more farmers to sell cattle. This should continue for the weeks to come.
What do we expect: Although sales have been decent in the past weeks the situation is not fully convincing. Many are betting on a better retail market in 2010 but the hard facts are against this in the western world. More bankruptcies and rising unemployment are still a high-risk factor. So far the strong demand from China and general stock replenishment have supported trade and prices, but how safe is this really? Short term, the market should stay steady, but further into 2010 the situation remains risky and it should be watched closely now.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 1,45 | Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,30 | Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1,00 |
Steady |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 0,90 |
Steady |
|
|
30/+
kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,80 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,50 | Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,25 | Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,20 | Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,70 | Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,60 | Steady |
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